(John Salustri interviews Dan Miller, Fundrise, and Gabriel Silverstein, SIOR, Vice President, SIOR-NYC/Downstate NY Chapter, on crowdfunding.)

NEW YORK CITY—There is something new under the sun. Even though crowdfunding is becoming a familiar phrase in commercial real estate, it still remains something of a mystery. Daniel Miller, co-founder and president of pioneering platform Fundrise, pulled the curtain back on much of that mystery during the final session of the recent SIOR Tri-State Conference.

The session was moderated by Gabriel Silverstein, vice president of the New York Chapter of SIOR, a GlobeSt.com Thought Leader. For a glimpse into the session, click the video above.

Essentially, explained Miller, “Crowdfunding is raising capital online in smaller increments, and leveraging the power of technology to distribute investments.” In fact, while normal subscriptions run from $50,000 to $100,000, the Fundrise executive says he has “had deals where people have invested in a development project for as little as $100.”

The concept started when Miller was pursuing Washington, DC-area infill transactions, ranging from $3 million to $5 million, deals private equity firms wouldn't touch. The choice was made to create a web platform and let potential investors—mostly local investors who knew the neighborhood and were familiar with local demographics—see the building and invest. Miller says it took about “two years to work the filings, and after a lot of brain damage,” Fundrise launched in August of 2012.

As Silverstein observed, that hyper-local approach, “is a unique twist, an avenue for the small guy to invest in specific real estate deals they know. There's only one other place I've seen that investment rationale. That's in small NNN-leased assets where I have seen a buyer purchase a property at a lower cap or outside their other general purchase parameters simply because they live nearby, can drive by it and point it out to their friends and family and say, 'Hey, I own that Walgreens!' It's ironic that someone would go to the global internet investor market to find investors that are literally just around the corner.”

But, as Miller pointed out, the power of the web has brought investors from South America and Asia into the fold as well.

There has been much written about accreditation and the type of investor who plays in the online space. Miller pointed out that currently, the majority of investors on this platform are accredited, high-net worth, semi-institutional family offices. But regulations, passed in 2012 and currently “stuck with the SEC,” will allow such platforms to raise capital nationally from any single investor in the US. It will, he said, “be a real sea change.” In a follow-up conversation, Miller pointed out that the SEC has moved on part of the issue, Regulation A, which he says will “ease the ability to raise from non-accredited investors.”

Overall, Miller likens the platform to a basic investment banking model. “We fund the transaction at closing with our own balance sheet and then we put it up to resell,” he explained. “It's investment banking but leveraging technology to manage and distribute to a broader base of investors, with all of the fundamentals in place, sourcing, underwriting, funding, closing documenting and then selling. It's the basics of real estate finance.”

And while debt will be the easier and first venue to scale, “there's no reason why, in five or 10 years, huge institutional debt or equity won't be sourced and distributed online.”

This story and video are part of an exclusive series from GlobeSt.com and SIOR highlighting insights and innovations in office and industrial. For more videos and stories for this Thought Leader, click here.